Online Companies that depend on advertising revenue will always be valued on their ability to turn their usage and page-views into dollars. This makes creating and selling effective advertising opportunities as important as winning users.
Many online startups are bypassing advertising or other business models altogether to focus their resources on scaling communities of users around their technologies. The belief is that these companies will be able to realize significant revenue potential once they have reached critical mass. Many of these founders are more likely hoping to become acquisition targets before they have to implement money making strategies.
Pursuing an ad driven business model isn’t a sure path to profitability. Even big online successes struggle with how to attract and grow ad revenue. The release of Facebook’s Beacon and the aftermath provides many lessons. Before Beacon many big brands were beginning to explore their FaceBook strategies. Since Beacon most are working on social strategies outside the popular social networks.
How viable is the online advertising business model for most companies? Is it risky? Should you spend time and resources pursuing ad dollars when you could more easily focus on driving usage and locating other streams of revenue?
For most sites, I believe online advertising is both viable and important. Here’s why. Advertisers do more than pay for linked real estate. By associating themselves with your brand they substantiate the value you’re creating, and the value of the users you’re attracting. Advertising can also gives your users access to a wider variety of relevant products, services and resources. Building a healthy community of advertisers, business partnerships and affiliates can make your company more valuable and attractive to both your users and potential buyers.
Online destinations that build spaces around specific user missions, affinities or activities are more successful selling ads and keeping rates high. I call these holistic communities. These are websites or channels where the operators, users and 3rd party marketers all share aligned missions or purpose, creating an ecosystem of interdependent participants. You could also simply call this synergy.
To qualify your advertising potential, first take a close look at the audience you’ll be building, and what they’ll share. What ties your community together? Can you locate a well rounded universe of advertising and business development prospects that can help your users and communities succeed? Those are the relationships you should pursue.
The key is giving users relevancy. Google is the most profitable online advertising company because they deliver relevancy both on their site and across the web. Google developed a slightly better method for ranking websites at a time when Alta Vista, the former leader, watered down its search mission to compete with full service portals like Yahoo. By enhancing search relevancy, Google won the search market. In 2003 Google introduced AdSense, a tool that serves cost-per-click ads by analyzing and targeting page content on publisher sites. AdSense gives web site owners an easy way to have contextually relevant ads appear on any page, monetizing web pages without selling ads. AdSense enabled Google to spread its existing cost-per-click business across the open web.
Google demonstrates that the key to advertising success is relevance. So as an ad driven business your mission becomes centered on helping your users find relevant ads. How can you accomplish this? There are 2 basic methods. One is by targeting user consumption, and the second is by targeting user profiles.
Google’s business targets consumption. A user searches for a specific word or term demonstrating a desire to consume a highly defined product or content. Google serves advertising and web sites aligned with the consumer’s immediate interest. Google’s AdSense looks at the content being consumed and serves ads that are topically aligned with that content. Both of these methods bring users relevant options that they wouldn’t have had access to otherwise, which is why Google’s click rates are so high and their products are so profitable.
In order to provide users with relevancy based on content consumption, your site must be easy to navigate based on need. Clear and thoughtful menus, channels, grouped content, keyword search tools and other drill down methods will all allow you to create user value and carve out effective advertising opportunities. Yahoo’s Auto, Finance, Real Estate, and Jobs channels each work to build user and advertiser communities around specific needs. The focus of these environments commands much higher ad rates by allowing timely introduction and fueling competition for premium placement. Unfocused pages on the Internet generate .25-.35 cents for every thousand pages viewed. Holistic communities can often achieve effective CPMs (Cost-per-thousand) of $10-$20. AdSense generates effective CPMs of $1.00- $15.
Whereas consumption targeting is time-based (I have this consumption need at this moment), other methods for targeting are user-based. By identifying and publishing your demographic, psychographic and behavioral data in your media kit, you are building the basic targeting tools that media planners will use to consider whether your audience is right for their message.
There are other technology-driven targeting methods that utilize user cookies and/or personal registration data. These methods allow companies to serve relevant ads that are not contextually tied to current consumption. If your company assigns user-cookies that track which users spend time on your food and recipe pages and search on food and recipe related words- you can use that data to serve those users food and recipe related ads even when they are involved in activities that have nothing to do with food. This type of data allows you to create more opportunities to reach specific user segments. If you have an online registration process that records user demographic information like age, gender, industry, interests, income or other personal attributes, you can leverage this data to help advertisers filter out the users who are not in their target market. These capabilities command much higher ad rates because they allow advertisers to concentrate their impressions to ideal users, which eliminates waste.
Both of these methods utilized stored user
According to Peter Fleischer, Google's Global Privacy Counsel, “The key privacy principles which govern the collection and use of PII are “notice” and “choice”. Any ad targeting based on PII needs to be transparent to end-users and to respect their privacy preferences.”
In other words your privacy policy should clearly state how you collect and use
Why is relevancy so important to building a successful advertising business? It helps to understand the economy that drives much of the free and open Internet.
"Attention economics" today is primarily concerned with the problem of getting consumers to consume advertising. Traditional media advertisers utilize a linear model that consumers go through - Attention, Interest, Desire and Action. Attention is therefore crucial. -WikiPedia
What is an Attention Economy? When you begin selling online ads you’ll hear prospective advertisers often say “I don’t look at banner ads, so I don’t think other people do either.” How many of us would say that we actually pay attention to Internet advertising? When we talk about online ads we’re talking about the loud, alluring or otherwise distracting advertisements that we find completely irrelevant to us. We become conscious of having to withdraw our attention in order to stay on mission. If we didn’t do so, we couldn’t focus. When users see an ad that is of high interest, the thought that they are being served an ad often goes away completely. Targeted messages often feel more like points of interest than sales pitches.
Consider user attention the new online currency. When your users give their attention, repaying that attention with relevance will earn you more and more of their attention. This creates an environment where your users and the advertisers who are capable of serving them can come together. The more relevant advertisers each user sees, the more attention they are willing to spend. This is how business, and a lot of it, can get done in online. Just look at Google’s bottom line.
So how do you begin? You begin by understanding that you have to start somewhere, and you’re better off starting with business development relationships and affiliates that will help set the foundation and the tone for your communities or channels. Better to make less money will smaller advertisers who you think can succeed with your audience than to accept large untargeted campaigns that treat your users like eyeballs. You’re goal is to build slowly and to keep your ads and business partners aligned. When those eyeball marketers with big budgets come calling, always consider whether their participation on your site will help you build an economy of attention or distraction. When your environment leans towards distraction, every participant of your community and economy will likely pay a price.
The following describers are helpful in assessing the health of a sites attention economy. As you visit your favorite sites ask yourself if you think their economy is based more on attention or distraction. How do these characteristics effect your relationship with the site? What’s your sites economy based on?
Attention Economy
- Focused
- Relevant
- Personal
- Engaging
- Safe
- Interesting
- Purpose
- Options
- Value
- Community
Distraction Economy
- Unfocused
- Random
- Isolating
- Noisy
- Suspect
- Predatory
- Distracting
- Diverting
- Fatigue
- Wilderness
If you can succeed in keeping your attention economy healthy, and in building holistic environments that are sustainable, reaching a critical mass of marketers and users should provide the following Network Effect:
- Advertiser response rates, conversion rates and renewal rates that are well above industry averages.
- Users that visit more often and stay longer.
- An advertising market place where competition for your best inventory justifies healthy rate increases.
These are the attributes that keep effective CPMs and total ad revenue potential on the rise, leading to a healthy and profitable Ad Driven business.
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